Opportunity Zones were created under the Tax Cuts and Jobs Act of 2017 to spur investment in distressed communities. Opportunity Zones are low-income census tracts that have been designated as eligible to receive investments from Opportunity Funds. State and local officials determined which areas of their state they wanted to designate as Opportunity Zones and sent this list to the U.S. Department of Treasury for approval. Opportunity Zones need capital. To get this capital, the Opportunity Zones program offers special tax incentives to investors who roll their capital gains into an Opportunity Fund within 180 days. Tax incentives include temporary tax deferral, step-up in basis, and permanent exclusion from taxable income of capital gains. An Opportunity Fund is a private sector investment vehicle and it must put at least 90% of its capital gains in Opportunity Zones. An entity must be classified as a corporation or partnership to be eligible to establish an Opportunity Fund. An Opportunity Fund should self-certify by completing IRS Form 8996 and attaching the form to their federal income tax return. This form should be submitted annually to ensure the Opportunity Fund is putting 90% of its capital gains in Opportunity Funds. Opportunity Zones are not tax credit programs. Tax credit programs are subjected to annual tax credit allocation authority. Opportunity Zones are different because they are governed by Internal Revenue Code, which does not limit how many Opportunity Funds can be created or how many investors can receive benefits.
- Temporary Tax Deferral
- Step-Up In Basis
- Basis is increased by 10% if it is held in an Opportunity Fund for 5 years
- Basis is increased by 15% if it is held in an Opportunity Fund for 7 years
- Basis is increased by 15% and entitled to permanent exclusion if held in an Opportunity Fund for 10 years
- Permanent exclusion from taxable income of capital gains
- Only applies to gains made from investment in Opportunity Funds
- Only applies if investment has been held for 10 years
Image Courtesy of the Economic Innovation Group. Image: Incentives Offered by the Opportunity Zones Program
Opportunity Fund Investments include:
- A partnership with or the ownership of a business within an Opportunity Zone
- For a business to qualify as an Opportunity Zone business, 70% of a partnership or corporation’s tangible property must be qualified Opportunity Zone business property.
- Working capital can be included as part of the 90% of capital gains Opportunity Funds must put into Opportunity Zone businesses. It can be included as long as the intended uses of the working capital are designated in writing, there is a written schedule of when this capital will be used and that the working capital is used in compliance with the designation and schedule previously dictated. Also, the working capital cannot be held for more than 31 months.
- Real estate in an Opportunity Zone
- If an Opportunity Fund decides to improve an existing building it must substantially improve said building. An Opportunity Fund substantially improves a building when it spends more on improvements for the building than it spent on purchasing the building. This improvement does not have to include improvements to the land, thus the basis attributable to the land is not taken into account when determining if a building has been substantially improved.
- The development of a building (new or improved) must be completed within 30 months of the purchase.
For proposed IRS guidance go to: https://www.irs.gov/pub/irs-drop/reg-115420-18.pdf
Why invest in La Crosse?
La Crosse has been named the second most exciting small city in America. This was based on La Crosse’s night life, live music venues per capita, active life options per capita, fast food restaurants per capita(the fewer the better), and the percentage of young residents ages 20 to 34. It is home to the University of Wisconsin La Crosse, Viterbo University and Western Technical College. La Crosse has also been highly ranked in areas of health, well-being, quality of life, and education.
Opportunity Zones in La Crosse
Census Tract 2 and Census Tract 4 are the approved Opportunity Zones in La Crosse, Wisconsin. The following table gives a glimpse as to how these census tracts compare to the regional average.
|Census Tract 2||Census Tract 4||Regional Average|
|Adults that have a high school diploma||84%||93%||94%|
|Adults that have a bachelor's degree or higher||16%||43%||31%|
More about the Opportunity Zones in La Crosse
Census Tract 2 Development Projects
Riverside North Project
The Riverside North Project is located north of the La Crosse River along the US 53 corridor. It is at the confluence of the Mississippi River, the Black River and the La Crosse River. This 65-acre property was once home to Mobil Oil; today it is reimagined as a mixed-used waterfront neighborhood. This neighborhood will include housing, recreation and commercial uses. Recreation trails connecting Riverside Park to Riverside North are also being considered. The location of Riverside North is ideal because it is located within a half mile of Downtown La Crosse. The master developer of this project is Wired Properties and they are currently searching for investors. For more information please click here.
Star Center Project
The Star Center is planning to develop a recreational facility that will address individuals' diverse needs through adaptive and assistive equipment and knowledge assistance. Individuals with physical limitations are not able to use equipment, navigate a track or reach restrooms or showers in a typical exercise facility. Those with physical limitations are not able to do so because there is a lack of adaptive and assistive equipment and a lack of access to knowledgeable assistance at regular fitness centers. The Star Center's goal is to create health equity . The Star Center is searching for investors. For more information please click here.
Garden Terrace Project
Garden Terrace is located on the west side of Kane Street between St. Cloud Street and Hagar Street. The Garden Terrace Development Project was created to address La Crosse's affordable housing shortage. The development is to consist of 50 units of mixed-income housing and a 2,000 square foot community hub. The hub is to be a place where meetings and events take place. The community hub will have running water, restrooms, and a kitchen where the Hunger Task Force plans to expand its programming to include cooking and nutrition classes. Impact Seven, the developer, is searching for additional investors. For more information please click here.
Click Here for the presentation given at the December 14, 2018 Opportunity Zones workshop that took place at the La Crosse Area Chamber of Commerce by special guests Rebecca Mitch and Hal Karas from Husch Blackwell and Vicki Mincey and Rick Laber from Cinnaire.
LISC, CDFA, and the Ford Foundation Collaborate on Community OZ Playbook
LISC, in collaboration with CDFA and with support from the Ford Foundation, has released Navigating the Opportunity Zones: Community Partners. The release is the first installment of the LISC Opportunity Zones Playbook series, and is geared to the people and organizations committed to community revitalization and shared prosperity for all residents.